The passage has three important keywords: sovereign equality, sense of insecurity, and what was done to overcome that insecurity. The passage tells us that people delivered their rights to a sovereign power in return for the sovereign's provision of security. This was the only way to overcome the fear of insecurity. After all there is a give and take happening, and therefore there is a transaction. Thus 1 is the best choice. 2 misses on the people's sense of insecurity. 3 goes out because limiting the power of papacy is not the essence of the discussion. Choice 4 misses the idea of give and take, people give their rights to the sovereign in return for his protection. It misses the crucial word "transactional relationship".